Danielle Fugere, president and chief counsel for the shareholder advocacy nonprofit As You Sow, said disclosure is a prerequisite for holding banks to their climate goals. ”We want to understand what it is they’re doing,” she said. Laws like California’s bring to light the financial instability wrought by fossil-fuel-driven climate change and—in theory, at least—discourage financing that would exacerbate it.
Of course, merely requiring that banks disclose their emissions and climate-related risks isn’t likely to prevent the worst impacts of global warming. According to a landmark 2021 report from the International Energy Agency, no new oil, gas, and coal infrastructure can be built if the world is to limit global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit). That’s why Patrick McCully, a senior energy transition analyst for the French nonprofit Reclaim Finance, which advocates for a more sustainable banking sector, said legislators should be “pushing the banks to reduce their financing of fossil fuels.”
“These companies are acting against the interests of humanity, and we need to stop them,” he told Grist.
Fajans-Turner, however, said a policy of this nature would be difficult to write into law and would likely face legal challenges even in the most progressive states, where natural gas bans on new construction have been beaten back by industry groups.
Ann Lipton, a business law professor at Tulane University, said a better way for policymakers to limit new fossil fuel projects is to look beyond the banking sector. For instance, lawmakers could require insurance companies to factor in climate-related financial risks when designing their policies—which could make it harder for fossil fuel projects to get coverage. “We would love banks to stop financing risky activities, but at the end of the day, the job of a bank is to finance things that are predictably profitable,” she said. “It’s the job of the rest of society to make that [thing] not profitable.”
Another strategy is to require that banks publish a clear decarbonization plan, which can, in theory, be a sort of back door to blocking new fossil fuel investments. “Implicit in having a target is that the bank is taking some kind of action to ensure that it meets that target,” Fugere said. If a plan mentions “net-zero” by a certain date, then to be credible it must involve some sort of scaling back of fossil fuel financing. If it claims to align with a pathway to limit global warming to 1.5 degrees C, then it must not enable the expansion of fossil fuels.
